Tax Strategies for Retirement Portfolios


Tax-deferred financial vehicles are an effective way to accumulate assets while you’re working. However, once retired, individuals should carefully consider how (and when) to position assets to help optimize growth and income while reducing their tax liability. The following are some points to remember about distributions.

Taxable Investment Portfolio

  • Short-term capital gains are taxed at ordinary income rates
  • Long-term capital gains (investments held one year or longer) are subject to capital gains tax of up to 20%, depending on your tax bracket

Traditional IRA

  • Tax-deductible contributions grow tax-deferred until withdrawn
  • Required minimum distributions begin at age 70 ½
  • All distributions are taxed at ordinary income rates

Roth IRA

  • Post-tax contributions are not subject to income tax
  • Earnings are generally tax-free after age 59 ½

Non-qualified Annuity

  • Post-tax contributions are not subject to income tax
  • Earnings are taxed as ordinary income

Qualified Annuity

  • Tax-deductible contributions grow tax-deferred until withdrawn
  • Required minimum distributions begin at age 70 ½
  • Distributions are taxed at ordinary income rates

Life Insurance Contract Cash Value

  • Generally, distributions in the form of policy loans are tax free
  • Interest earnings that are credited to your policy are generally tax free when paid in the form of a death benefit, but are taxed as ordinary income if the policy owner surrenders the policy.

Most retirees are in a lower tax bracket once they stop working. If a retiree is in the 15 percent tax bracket, earnings from a taxable investment portfolio will no longer be subject to a capital gains tax. Every individual’s situation varies, so it’s important to consult with a tax advisor and a financial advisor about the most tax-efficient ways to withdraw or reposition assets during retirement.

 

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

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